Correlation Between National CineMedia and Diversified Energy

Can any of the company-specific risk be diversified away by investing in both National CineMedia and Diversified Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining National CineMedia and Diversified Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National CineMedia and Diversified Energy, you can compare the effects of market volatilities on National CineMedia and Diversified Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in National CineMedia with a short position of Diversified Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of National CineMedia and Diversified Energy.

Diversification Opportunities for National CineMedia and Diversified Energy

0.06

Correlation Coefficient

National CineMedia  Diversified Energy

Significant diversification

The 3 months correlation between National and Diversified is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding National CineMedia and Diversified Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Energy and National CineMedia is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on National CineMedia are associated (or correlated) with Diversified Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Energy has no effect on the direction of National CineMedia i.e., National CineMedia and Diversified Energy go up and down completely randomly.

Pair Corralation between National CineMedia and Diversified Energy

Given the investment horizon of 90 days National CineMedia is expected to generate 2.45 times more return on investment than Diversified Energy. However, National CineMedia is 2.45 times more volatile than Diversified Energy. It trades about 0.05 of its potential returns per unit of risk. Diversified Energy is currently generating about -0.01 per unit of risk. If you would invest  304.00  in National CineMedia on October 10, 2024 and sell it today you would earn a total of  338.00  from holding National CineMedia or generate 111.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

National CineMedia  vs.  Diversified Energy

National CineMedia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National CineMedia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong primary indicators, National CineMedia is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Diversified Energy

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Diversified Energy are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Diversified Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National CineMedia and Diversified Energy

The main advantage of trading using opposite National CineMedia and Diversified Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National CineMedia position performs unexpectedly, Diversified Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Diversified Energy will offset losses from the drop in Diversified Energy's long position.

The idea behind National CineMedia and Diversified Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.